Grayscale Investments LLC, a Digital Currency Group investment subsidiary owned by Barry Silbert, announced that it is planning to launch a private fund that will give investors exposure to ethereum classic.
The cryptocurrency ether classic (ETC) was sprung out of the aftermath of the Ethereum DAO hack in June 2016, when around $50 millions worth of ether (ETH) was stolen. The developer team decided to ‘hard fork’ the blockchain to recuperate the lost funds; this, in turn, caused a divide among the miners of which some decided to continue to mine the original Ethereum blockchain whose cryptocurrency was then referred to as ETC.
Ether classic is currently the seventh largest cryptocurrency with a market capitalization of around $115 million according to CoinMarketCap and is currently trading at around $1.29 per coin. Ethereum classic’s blockchain has effectively the same functionalities as the ethereum blockchain allowing for the creation of smart contracts and the development of decentralized apps.
Grayscale’s ether classic fund will be an open-ended investment trust that can raise an unlimited amount of funds. The seed capital to launch the fund will be provided by the Digital Currency Group and the initial investor base will be limited to accredited investors only.
Grayscale Investments has made a name for itself in the fund management sector for being the first to launch a fund that exclusive invests in bitcoin, called the Bitcoin Investment Trust. The Bitcoin Investment Trust (GBTC) was initiated in 2013, has over $200 million assets under management and is traded over-the-counter. It currently trades at a premium to bitcoin, which indicates that there is a demand for more traditional investment products that facilitate digital currency investment.
"As investors have grown more interested in digital currency as an asset class, we've also seen growing frustration with the difficulty in purchasing non-bitcoin digital currencies. We're excited to launch a fund for ethereum classic to satisfy the growing interest we are seeing in ETC from more mainstream investors," Barry Silbert told Reuters.
Investing in an ETC fund is without a doubt a much riskier investment than investing in Grayscale’s Bitcoin Investment Trust, for example, which has bitcoin as the underlying asset.
The ETC community is small, and changes will still be made to the cryptocurrency and its blockchain to ensure that it does not face the same security issues that its older brother ethereum has faced and to improve it for developers and miners. This includes a hard fork that comprises proposed changes to its monetary policy with a cap on coin supply and block reward halving by the end of 2017.
Then, there is still the issue that ether (ETH) holders at the time of the ethereum hard fork that created ethereum classic (ETC) can double spend their ether as ethereum classic. Naturally, ether holders have been dumping their “free” ethereum classic, which has prevented the price of ETC from climbing higher. Therefore, there are still enough ETC holders out there who are willing to sell and, in some cases, have an incentive to keep the price of ETC low as they do not want ethereum classic to succeed and compete with ethereum.
While it is promising to see another cryptocurrency investment product appear in the traditional financial markets, an ether classic fund has to be looked at with caution due to the substantial risk involved in investing in this altcoin. Should there be significant investor demand for the new fund, though, then the price of ether classic would experience a massive rally.